Revised Division 296 bill 'still riddled with potential issues': Tax Institute

The Tax Institute says several core issues still remain with the bill for the proposed Division 296 tax, despite some minor changes being made to.

The Building a Stronger and Fairer Super System Imposition Bill 2026 was introduced into parliament earlier this month, following a short consultation period on the draft version of the bill.

Julie Abdalla, senior tax counsel at The Tax Institute, said the revised bill does address some of the issues raised by stakeholders such as provision of transitional relief from the new tax for capital gains that have accrued before its introduction.

However, while there are some improvements, major concerns with Division 296 remain, she warned.

Abdalla said the new tax was proposed to apply even to members who have passed away with the exception of the first year. This would create great uncertainty for trustees of deceased estates, she cautioned.

"There is also no transitional CGT relief for taxpayers who cross the $3 million threshold in the future, so capital gains accrued when a member was below the threshold will be taxed at the full amount if they cross the threshold," she said.

"Most concerningly, it is unclear what review or appeal rights members will have if they disagree with a Div 296 assessment or a superannuation fund makes a mistake."

Under the proposed operation of the tax, the ATO will be relying on superannuation funds to calculate the share of income of the fund that affected members will be assessed on.

"[However], it is unclear what happens if the member disputes or disagrees with the super fund's calculations," she said.

"Do they have the right to appeal? What happens if the trustee of a superannuation fund makes an error and it is later determined that the member's Div 296 earnings should have been higher? Will they be subject to penalties even though the member had no input into how the calculations were made?"

The Tax Institute said the consultation period for dealing with such complex and major changes was far too short and largely overlapped with the Christmas holiday period, when most businesses had shut down.

"It’s true that some minor changes were taken on board, which is positive, but even in the limited time to review and provide comments on the exposure draft, many issues have been raised about this proposed reform, which remain unanswered," Abdalla said.

Abdalla said the legislation remains riddled with unknowns or potential issues.

"It is hard not to conclude that a simpler, fairer model could have been adopted if the government had consulted more constructively, earlier in the design stage."

The Tax Institute said while it views reducing concessions for members with large balances to be, in principle, reasonable, the method the government is adopting is very complex.

"Better consultation with industry and tax professionals at the initial design stages could have resulted in a simpler, more workable model."